Democrats purse lips on Panama

Embracing populism and criticizing free trade on the campaign trail were the easy part. But now that Barack Obama is negotiating actual trade pacts, he’s learning why this issue has become a third rail for Democratic leaders.

Trade cleaves Democrats like few other issues, and the administration’s confusing actions on a relatively minor trade deal with Panama, a country not quite the size of South Carolina, has inflamed the family feud. Earlier this spring, the administration looked as if it were going to hash out a Panama free-trade deal. Then the White House quickly changed course and slammed on the brakes just before Memorial Day.

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The political fallout: Both sides are angry. And the stumbling on this issue could undermine support from moderate Republicans the White House needs on other big-ticket agenda items.

“The last thing that we need as a caucus is to try to move forward on a Bush-negotiated trade agenda that will definitely divide our caucus and will sidetrack the very important issue of trying to move forward with a good health care proposal,” where Democrats in Congress should be focused, Rep. Michael Michaud (D-Maine), a leading opponent of the Panama deal, told POLITICO.

Meanwhile, Sen. Max Baucus (D-Mont.) — echoing the disappointment of other pro-trade Democrats — vented frustration at the administration for seeming to reverse its support for the deal.

Citing Panama’s willingness to make labor changes and start negotiations on tax concerns, “I’m just scratching my head here — it sounds like a pretty good deal to me. Why doesn’t the administration just take it?” Baucus said to a top United States Trade Representative official during a recent hearing.

Panama engaged in a “good-faith effort for the United States to help reach an agreement with Panama, and now [Obama] seems to be backing off, and I just don’t get it, frankly, personally,” Baucus said.

The free trade agreement would immediately banish tariffs on nearly 90 percent of U.S. goods and more than half of agricultural exports to Panama. While trade between the two countries is modest, American machinery exporters such as Caterpillar Inc. are particularly keen to see the deal done before Panama finishes taking bids on its expansion of the Panama canal — a $5 billion-plus public works project.

Critics say that Panama has not done enough to enact the labor law changes to protect workers’ rights that the country agreed to in a compromise struck between the Democrats and the Bush administration in 2007. They also say the pact should not go forward until Panama, which has been labeled a tax haven, changes its secretive banking laws.